Credit Suisse launches global property stocks fund

Credit Suisse has recently launched a global real estate equities fund to tap an expected recovery in share prices following sharp declines over the past 18 months, as the bank believes the sector is now approaching the bottom of its freefall.

'We believe current valuations present a compelling opportunity for long-term investors with stocks generally trading well below net asset value (NAV). Most of our competitors' funds were introduced in recent years when real estate equities were trading well above NAV,' Lawrence Raiman, portfolio manager for the new Credit Suisse SICAV One (Lux) Equity Global Property Fund commented.

Raiman said that at the start of 2007, real estate stocks were averaging a 25% premium to NAV after five years of above 26% annual investment returns. However, the onset of the credit crunch and the collapse in some property sectors and markets saw available credit evaporate and premiums decline by 40% from their peak.

Global REITs have historically traded at a 5% to 10% premium to NAV, but are now at a -22% discount. Although the asset class continues to face headwinds in the near-term, Credit Suisse believes the underlying fundamentals of the direct property market are entering a slowdown in a relatively healthy shape, suggesting this is an opportunistic time to invest. Raiman highlights that the fund invests mostly in commercial property stocks (only 6% of the benchmark is concentrated in companies with residential exposure) - an important distinction because the global commercial real estate business is exhibiting much more resiliency than the residential business.

Global office vacancy rates are low and rents are expected to remain stable. Demand also appears relatively healthy, with average net absorption rates of about 2% for key markets such as London, Tokyo and New York in line with the historical average. Over the last 15 years, net absorption rates in office markets have turned sharply negative only once - following the burst of the dot.com equities bubble in 2000.

In today’s market environment, Raiman notes that 'inflationary pressures are increasing around the world and real estate stocks have traditionally performed well as an inflation hedge. Not only do long-term lease contracts provide a stable cash-flow through weakening economic trends, but leases typically have ratchet clauses that link rent rises to inflation. Rising land values, labour and commodity prices also increase the funding costs of new developments, thereby limiting new supply.'

The available investment universe has also increased tremendously, with global properties equities market capitalisation standing at below $400bn 10 years ago compared with over $1tln now, due particularly to the startling expansion in REIT markets internationally.

Credit Suisse operates an integrated global real estate securities investment platform. A team of 14 professionals is dedicated to fund management and research in New York, Zurich, Singapore and Sydney and manages approximately $2.5bn in real estate securities.